From: Ras, Gerard [GerardR@cfra.org]
Sent: Friday, June 13, 2003 11:35 AM
To: rule-comments@sec.gov
Cc: Granary Board
Subject: File No S7-10-03
June 9, 2003
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549-0609
Re: S7-10-03 and SEC Release #34-47778
Dear Secretary Katz:
The Granary Foundation, an endowment managing over $5.5 million in assets
submits the following comments in response to the Securities and Exchange
Commissionís solicitation of views concerning shareholder proxy access and
the election of corporate directors (File Number S7-10-03).
We are encouraged by the Commission's efforts to revitalize discussions
concerning shareholders' access to the proxy ballot, and feel that a review
of existing rules concerning the election of directors is long overdue. The
significant lack of shareholder access to the corporate proxy -- and the
self-perpetuating board that results -- is an enormous obstacle to preventing
corporate abuse and restoring investor confidence.
Entrenched managers and directors will only improve corporate governance,
executive compensation rules, and stakeholder engagement when held accountable
by investors, and can be voted out by shareowners for failure to act in their
best interests. That is unlikely at present: theoretically, there could be a
majority of shareholders that withhold their votes from a candidate, and still
have that nominee elected to the board. The current process in no way resembles
a true election. It is merely a rubberstamping exercise, with shareholders
formally ratifying the Board-nominated slate. It is this lack of true executive
oversight, a very dangerous conflict in governance structure, which has
contributed to the corporate malfeasance of the last few years.
Access to the proxy is one of the most significant reforms the Commission could
undertake to make boards more accountable for their actions. At present,
investors need to strengthen the incentives for management to nominate directors
that ask the tough questions of executives. That's precisely what was needed at
Enron, Tyco, and WorldCom -- where there was a majority of independent directors.
Although state law permits investors to nominate and solicit votes for their own
candidates, because of the high costs involved, it rarely happens. The few
shareholders that do spend tens of thousands of dollars to submit an alternative
slate for the Board usually don't take that step until concerns and liabilities
have become unmanageable. By this time, it's too late because shareholder value
has already begun to evaporate. And the process is always more beneficial to
management than investors: Management uses shareholder assets to print, mail, and
solicit votes for its nominees to the Board. Shareholders, meanwhile, end up spending
about $2 per investor to run a competing candidate -- which means a separately
mailed proxy, costly legal fees, and possibly millions of dollars for the entire
process. Shareholders most often vote on candidates nominated by directors, and
rarely with any choice: if there are eight board openings, then eight names
typically appear on the proxy.
Greater shareholder access to the proxy better aligns the interests of investors
with the interests of management; reaffirms that shareholders are the beneficial
owners of companies; attempts to rebalance the special interests of top executives
when they pervert the system of corporate governance and fiduciary trust; makes it
possible for investors to have a more meaningful voice in the governance of corporate
affairs; empowers directors to voice opinions and strategies contrary to "groupthink";
and eliminates the confusion of separate proxy ballots.
We recommend the Commission explore the following ideas to provide a more level
playing field for investors, and more adequate opportunities for shareholders to
both nominate candidates and to solicit support for them with fewer cost burdens
and paperwork:
1.. Eliminate section (i)(8) of Rule 240.14a-8, concerning criteria for
proposal exclusions on the proxy related to board elections.
2.. An investor or group of investors own at least 1% of shares (in
aggregate) in the company, for at least one year, in order to nominate a
candidate or candidates. [This standard should be no higher than 3% of
shares.] A combination of a 1% threshold plus a minimum number of
shareholders who are nominating the candidate should also warrant
consideration.
3.. Investors, singly or cumulatively, must nominate less than half of
available positions for the Board. If more than half of the nominees are
put forward by shareholders, those candidates with the largest aggregate
share support behind them should make it to the ballot.
4.. A complete ban on broker votes or uninstructed share voting. However,
we support broker votes counting for a quorum, so that the business of
the meeting may occur.
5.. Directors should be elected annually. Shareholders should have the
right to voice their support or concerns regarding board performance on
an annual basis.
6.. Cumulative voting should be used in the election of directors.
7.. All nominees should disclose material familial, professional,
and financial relationships to the company and its executives in the
nominee statement on the proxy.
8.. The "for" and "withhold" options on the proxy card should be
eliminated, and replaced with standard proxy voting options like
those for resolutions: "for," "against," and "abstain."
9.. All nominees should be provided equal space with a reasonable
number of words to provide background information, a supporting
statement, relevant experience, and material relationships to the
company. A picture should also be included. The company must present
candidates --management's and shareholders' -- in the same consistent
manner, length, font, style, etc. Management should not segregate its
list of nominees from that of investor nominees, but should note
clearly that they are board nominated candidates.
10.. All corporate directors should attend the annual shareholders'
meeting. Failure to do so should be reported in the proxy, along with
attendance at Board and committee meetings
CEOs will not relinquish power and authority easily, for many have traditionally
wielded control over their boards. Investors are now looking to the Commission
to bring fairness and balance to director representation. This is an opportunity
for the SEC to put meaning back into the term "board independence."
Sincerely,
Gerard Ras, CPA
Administrative Director
Granary Foundation and Center for Rural Affairs
P.O. Box 406
Walthill, NE 68067
Voice: (402) 846-5428 ext.17
Fax: (402) 846-5420
gerardr@cfra.org